The previous post, and article by James Langton give me the further impression that the IDA has not yet come clean on what it is allowed to be responsible for under the Securities Act

I see it as example that the IDA continues to spend it's credibililty by misrepresenting what it is responsible for and not responsible for to the public.

The issue goes much, much further than the discipline of former brokers. It relates to each Securities Commission, to a breach of duty to the public on investigations, allegations of fraud that may or may not have been handled correctly under the law, etc., etc.

It is an ever widening story with attachments far and wide. Stay tuned.

The Saskatchewan Financial Services Commission has ruled that the Investment Dealers Association doesn’t have jurisdiction to bring disciplinary action against former registrants.

The IDA launched disciplinary proceedings against three registrants in 2004. Two of the three were no longer registrants, and they sought a stay of the disciplinary proceedings on those grounds. These motions were dismissed by the IDA hearing panel, and its appeal panel. From there, they turned to the SFSC.

In the case of the two who are no longer registrants, the SFSC found, “Since the IDA has no authority to regulate former members or former approved persons either under its bylaws or in contract, it has no jurisdiction.” It therefore allowed their appeals and granted stays of the disciplinary proceedings against them.

The third person accused remains a registrant, although he alleges that the IDA has lost jurisdiction because there has been unreasonable delay by the IDA in its investigation or prosecution of the charges against him. The SFSC dismissed this argument, disallowed his appeal and denied a stay in that case.

I think it’s fair to say, the financial industry is at an interesting crossroad. In the MFDA’s January bulletin, member firms were notified that MFDA staff is starting a second round of compliance examinations. In this second examination, the MFDA will be reviewing the various deficiencies they uncovered in their initial examinations at member firms. In the conclusion of the notice, the MFDA noted: ‘any deficiencies that were noted in the first examination that have not been rectified will be considered for referral to the Enforcement Department of the MFDA.’

The question is:

what deficiencies will actually be referred, and how will the Enforcement Department handle the referrals?

The deficiencies found in the first examination were extensive, and in some cases, down right embarrassing. The MFDA found evidence of everything from churning and discretionary trading (issues that were immediately referred to the Enforcement Department of the MFDA), to simple but obviously critical issues like:

Trade blotters not being reviewed regularly
No evidence of follow up on issues discovered on the trade blotter
Not maintaining a log of client complaints and/or not responding to client complaints
No branch compliance reviews being conducted

After reviewing the ‘common deficiencies’ discovered by the MFDA, someone from outside the financial industry might reasonably ask, ‘since mutual fund dealers were monitored by the various securities commissions prior to the invention of the MFDA, how could these types of basic supervision issues be common?’

They are common, because prior to the MFDA, dealers were so rarely disciplined for such infractions. It’s hard for a dealer today to take these threats seriously. Although cheep, user-friendly technology exists to wipe out almost all of the more mundane day-to-day suitability and review problems pointed out by the MFDA, compliance departments have a tough time justifying the costs (or even the effort) to management, when the perceived threat is so low.

This lack of dealer motivation is not just an MFDA inherited problem. According to a BCSC’s 2002 audit of the IDA, ‘since taking sole responsibility for member regulation at IDA firms in 2000 (prior to 2000 the jurisdiction was shared by the CDNX, formerly the VSE), not only was the volume of proceedings not commensurate with the IDA’s new regulatory role, at the time of the report, the IDA had taken no action against firms in the previous 24 months.’ Even today, a review of discipline statistics on the IDA website shows an appallingly low number of investigations.

I’m not aware of the IDA releasing numbers from any audits they perform at member firms, but having personally been through a BCSC audit prior to the MFDA as well as an IDA sales audit, I can tell you the number of unsuitable investment cases randomly discovered by auditors makes the tiny number of complaints that actually get documented by COMSET look ridiculous.

Why are the numbers reported to COMSET so low? Almost certainly because of the cost and effort required by investors to hire legal council to try and chase down losses. If you go into the IDA’s statistic page again, you’ll see another possible reason: the number of cases of investors that win arbitration are also frightenly low. In such an environment it is easy to see why dealers take these reviews somewhat lightly.

The IDA’s attitude appears to have changed little since 2002 in regards to suitability and supervision complaints. For example, someone not familiar with the financial industry might wrongly assume the IDA would consider fining a dealer for improper supervision when an audit detects a large percentage of randomly reviewed accounts containing unsuitable investments. Instead, the IDA issues a written notice to the dealer to ‘correct the deficiencies’.

Hey, I’m the first to admit, it’s a lot easier to deal with the handful of investor’s who lose their shirts each year to some crook than it is to try and stamp out all of the unsuitable investment problems before they happen. I’m sure it’s a lot easier to type up a deficiency report and walk away from the mess than it is to demand immediate action, but aren’t regulators in business to guard against such messes happening in the first place?

To be fair, I should point out both the MFDA and IDA are fining and banning obvious crooks in slam-dunk cases in which the advisor has simply stolen money from clients. But to be effective as protectors of the average investor, both regulators need to be far more proactive than regulators have been in the past. Regulators need to start fining incompetent advisors, and complacent dealers instead of just waiting for the investor complaints to roll in.

So, as I said before, we appear to be at a crossroad: what will the MFDA Enforcement Department do with the referrals it receives following this second round of reviews? Will the MFDA follow up on its threats and start issuing serious fines to make compliance with their policies and rules worthwhile from a business point of view? Will the increased pressure for positive headlines spur the IDA into doing more to protect the average investor? The MFDA notices look promising, as do the initial round of fines issued for serious rule infractions. But without follow-up, the threatening looking ‘bite’ will fizzle into an annoying small-dog ‘bark’ that can again be safely ignored by dealers.

About the author:

Edward Iftody is the president of PureLogix Corp., a financial technology firm dedicated to increasing investor knowledge and product awareness.

for further case info showing where the "selfish" regulators have perhaps violated criminal code section 122, breach of trust, see:

http://www.investorvoice.ca/Regulators/index.html and click on the section marked "cases" or on "IDA". You will be shocked and amazed at the amount of (mostly elderly) folks who have had to fight in the courts, after being snubbed and practically ridiculed by the "selfish" regulatory system.

below are my own small example of complaint that is still to come before the courts in Alberta:

the IDA, by trying to have it both ways, first by wanting to be an industry trade and lobby group, and second by wanting to be it's own self regulating agency has always forgotten how to deal with this conflict of interest. They talk the talk, but the walk of money always prevails.

There are seemingly two sets of rules in the investment industry; one set of rules written by the industry to supposedly protect client interests, and another set of rules written by the industry to protect the industry interests. My experience is that client protective rules can and do get overlooked when it is convenient to do so. No one in the industry suffers, and if a client complains, the industry is self policing, so they can easily brush it aside. Any rule intended to protect the industry can and will be fully enforced as intended.

For example, when I wrote to the IDA to complain about ethical lapses and what I felt to be violations of the securities act by my employers when I was with RBC, I received a nicely worded letter back saying that they have looked into my allegations and have decided not to initiate formal disciplinary proceedings against me in this matter. (say what??)

In my letter of complaint I outlined the many violations I was aware of from my position within the firm, and that I had tried to write newspaper articles telling clients how they could save money on mutual funds by not paying commissions. This writing process was banned by RBC at the time, due to the explanation they gave that such fees were too important to some advisors to give up. I responded that if they were true advisors, they would advise clients in the best interest of the client and not in the best interest of fees. I ignored the small industry protective rule in favor of the bigger client protective issue.

In typical IDA fashion, they chose to ignore the ethical and securities act violations (client protective) and instead threaten me (industry protective). I look forward to my day in court here in Alberta to debate the "you first" advertising promises of RBC which I felt were being ignored, and I look forward to the day when so called regulatory officials like the IDA (or provincial securities commissions) are held to the account of the breach of trust standards outlined in Terry Corcoran's Financial Post editorial yesterday. Criminal code violations (section 122) are being made by a self policing industry that wants to have it both ways, and it is nearing the time when this will no longer go un-noticed.

Here again is the link to Canada's top research site on they system:

for further case info showing where the "selfish" regulators have perhaps violated criminal code section 122, breach of trust, see:

http://www.investorvoice.ca/Regulators/index.html and click on the section marked "cases" or on "IDA". You will be shocked and amazed at the amount of (mostly elderly) folks who have had to fight in the courts, after being snubbed and practically ridiculed by the "selfish" regulatory system.

that the RCMP IMET looks at the IDA as a quasi police agency, in assisting them in investigating financial fraud.

Now here is the problem. Everyone knows the IDA is a registered lobby organization (registered in Ottawa) for industry. Funded by industry, staffed etc. For the benefit of the industry. Only through antique regulatory thinking are they allowed to pose as self regulators in addition to the original looby role. Now the RCMP is investigating the inside info/leak problem of the income trust announcement. The day of the announcement Goodale met with the IDA about it. Think about it. The government met with the lobby group of the investment dealers to negotiate and figure out how to best "handle" things.

That day, the amount of trading spiked to unprecedented levels and then came the announcement.

Is the IDA truly going to stand by and consider themselves "part" of the RCMP investigation? They should be part of it all right, but perhaps in the manner of a subject being questioned into who was in the room, which firms they represent, and how much trading did they do that day based on what they learned. They should certainly never again be considered as impartial, nor as self regulatory. They have proven that they cannot handle even this level of potential conflict of interest without putting selfish interests ahead of those of the public.

Lets take a moment to look at the brighter side if we can. For those seeking change and improvement in the way industry "walk's it's talk", the breakup of the IDA into two separate functions is a win. They did not do this of their own good motives and in the interests of the public. They did this as a result of pressure and exposure of the conflicts of interest they operated under.
They simply wanted it both ways. Don't we all.

Town hall meetings (arranged by Stan at SIPA), media coverage, blogs and forums all combined to inform the public to the sham the IDA was operating, and lo and behold they have reacted. I am calling that a direct result of advocate efforts. You can find another reason if you like, but that is what I am going with.

Now, for the credibility of the newly organized IDA. It is already damaged due to thier willingness to operate under this conflict of interest for decades. It has effectively rendered them useless as a self regulator. They will probably remain with some authority over membership, but not much else. They are already looking mighty desperate to reclaim their lost credibility as they seek another regulator (MFDA) to merge with.

I want to thank all those who fought for change, improvement and increased transparency. You succeeded.

For myself, my next question I would like answered is, "what self regulatory powers and responsibilities does the IDA truly have?" To hear them tell it verses hearing provincial securities commissions tell it speaks two different stories and I would like to find out who is telling the truth. If anyone can shed light on this, please let me know. I am ready to hire a researcher to find the answer if need be.

cheers
advocate

Last edited by admin on Mon Jan 02, 2006 11:37 am, edited 1 time in total.

What a sham! the IDA splits up and Joe Oliver will continue to head the self-regulatory organization like he's been doing for years.

"The self-regulatory organization “will continue to pursue the mandate it shares with the securities commissions — investor protection and the efficiency and competitiveness of the Canadian capital markets,” Mr. Oliver said.

To critics who contend that letting stockbrokers regulate themselves is akin to assigning foxes to police poultry barns, Oliver points to “a key advantage of self-regulation — the expertise of the many industry volunteers who serve on our regional district councils and numerous industry committees.” (G&M)

The Investment Dealers Association has been rebuffed in its attempt to merge with the national mutual fund industry's self-regulatory agency because "it is not in the public interest" despite the IDA's plan to shed its role as a lobby for the brokerage industry.

According to a letter distributed to 180 members of the Mutual Fund Dealers Association of Canada two days ago, the self-regulatory agency's 13-member board concluded "that it should not enter into discussions at this time" to merge with the IDA to create one self-regulatory organization for mutual fund and investment dealers.

That rationale is based on the conclusion that "it is not in the public interest at this time," and that "a merger would raise a number of complex and difficult issues," said the letter from Larry Waite, MFDA president and chief executive.

"The commencement of merger discussions with the IDA would create significant, and in the board's view valid, confusion and concern on the part of members that the extensive time, effort and cost that has, to date, been directed at making the MFDA an effective regulator, was wasted," declared the letter outlining the reasoning for its decision.

The IDA's overture, which was presented formally to the MFDA in September, was formally declined by the self-regulatory agency's board of directors after a meeting on Oct. 25.

The IDA had publicly urged the MFDA and Market Regulation Services Inc. (RS) to engage in merger talks to bring together the oversight of Canada's brokerage and mutual fund-dealer industries with the policing of Canada's largest stock markets.

Since it stated its intentions in July, the national self-regulatory body that regulates and lobbies for the brokerage industry has argued unsuccessfully to get a commitment for the consolidation of the three self-regulatory agencies.

Earlier this year, RS, created three years ago, held exploratory discussions although its board has not authorized formal merger discussions with the IDA, which owns 50% of the market regulator.

Sources say the MFDA, created in 2001 to regulate the $550-billion mutual fund industry, says "while the MFDA and IDA perform similar regulatory functions, there is no regulatory overlap."

More important, critics of the merger have resisted the proposed consolidation in part because of the IDA's trade association role, which would create the perception that the brokers' lobby group would also be overseeing and regulating the trading by its own members.

Sources say the MFDA considers itself a "pure regulator" and is concerned about the "trade association culture" at the IDA.

But Joseph Oliver, president and CEO of the IDA, dismissed the concerns. "We were not speaking to them based upon the existing structure but rather on the assumption that changes would be made," he said yesterday.

Last month, the IDA put forward a proposal to its membership that would split the 89-year-old organization into two separate entities to address the perceived conflict of interest. The plan calls for the creation of a separate trade association to represent the brokerage industry and a second regulatory agency to police it. Approval from a majority of the IDA's 190 member companies is required.

Meanwhile, Mr. Oliver expressed disappointment with the MFDA's decision to turn down merger talks. "We continue to believe it's in the public interest to consolidate," he said.

However, the MFDA's board, led by chairman Robert Wright, wasn't convinced.

"The announced intention of the IDA to dispose of its trade association activities will need to be monitored with a view to determining whether, in practice, the different roles are effectively separated," declared the letter to mutual fund dealers and distributors.

SVP Regulation, IDA
"First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement."

Carolann Steinhoff was at the top of her game. Until she decided to quit ScotiaMcLeod. That's when an all-out rumble broke out over who would get her customers. Because, in the brokerage business, your book is everything

WHOSE CLIENTS ARE THEY, ANYWAY?

When a person knowingly changes account statements

which misrepresent the truth in order to gain something, is that not fraudulent?

Why did the IDA go after Steinhoff instead of ScotiaMcLeod?

Any guesses?

The Chair of the Investment Dealers Association of Canada at the time was....

The securities commissions delegate certain aspects of securities regulation to the Investment Dealers Association of Canada, the Mutual Fund Dealers Association of Canada, Market Regulation Services Inc., and the Montreal Exchange.
These organizations are self-regulatory organizations (SROs). A self-regulatory organization is an organization that has been given the authority and the responsibility to regulate its members.
The Canadian SROs have been delegated responsibility by provincial governments to ensure that SRO Members meet agreed-upon standards that are written into the provincial laws governing securities. The SROs regulate markets and trading as well as Member firms, their employees, and their business practices, by:
setting standards that registrants must meet prior to employment;
creating rules governing how markets must operate;
monitoring and examining investment dealers on a regular basis including setting capital requirements to ensure firms are solvent and following all the rules;
extensively investigating suspected infractions; and
employing investigators and compliance officers to ensure the dealer community is meeting these standards.

The Investment Dealers Association is responsible for the regulation of its Members firms (Member Regulation) and monitors the bond and money markets. To find out if a firm is a member of the Investment Dealers Association, see our Member List.
The provincial securities commissions and administrators have formed a national group to work towards making securities regulations consistent and harmonized across Canada. This group is called the Canadian Securities Administrators (CSA).

(monitoring, evaluating, measuring thier own members appears granted to them...........but no where does it appear they have been given statuatory authority to enforce the provincial security act..........am I missing something here, or have the provincial commissions dropped the ball by assuming they could turn securities act complaints over the the IDA??)

interesting to see today's Globe and Mail article saying that the IDA has voted to "split" itself apart, making two divisions of the same organization.

In this they are finally admitting to the conflict of interest under which they operated for so many years.
One side of the Investment Dealers Association will now admit to it's role as an industry trade organization and lobby group for the interests of the industry. The other side of the IDA will continue to masquerade as some sort of a self regulatory agency, giving Canadians the impression that an impartial agency is charged with securities regulation. The sad part of this is that the Provincial Securities Regulators are sold on this concept, and they delegate any and all IDA firm conplaints directly to the IDA. This lets the provincial regulators off the hook (they feel) entirely for enforcement of securites law.
Meanwhile the only areas the IDA has authority over is regulation of it's own membership, (brokerage firms and their employees) and not status to enforce the Securities Act.
They are also trying to regain credibilty by offering to merge with the MFDA, and the MFDA is wisely having nothing to do with them.

Here is another reputable industry player asking for the IDA to fix its sorry record of conflicts of interests. The IDA cannot be a self-regulator of investor abuses, while it is also an industry lobbyist. Canada's system of investor proection and securities enforcement is being revealed as a sham everytime there is civil litigation success, like the CIBC fiasco, and prosecution of Canadian companies and executives by U.S. authorities, like the Hollinger executives.
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Divide and dither

How can the Investment Dealers Association of Canada do one thing and its opposite?

By DOUG STEINER
Friday, August 19, 2005

The Investment Dealers Association of Canada, one of the multiple regulators that oversee my business, looks like a crazy fire station to me—first trying to prevent fires, then fighting blazes after they start while also running a store out back selling matches and gasoline. All these things are needed, of course. But should one organization do them all?

The IDA is the self-regulating body and trade association for the securities business. The selection of its board of directors and its senior staff is strongly influenced by investment dealers. The IDA has two distinct missions: 1) protecting investors, and 2) enhancing the efficiency and competitiveness of Canadian capital markets. Among many other things, the IDA makes sure that brokers are properly registered, and that dealers have enough capital to do business. IDA staffers mean well, and they would like to do a better job of protecting investors. The trouble is, the association also has to lobby governments for measures that will enhance dealer profits, not impair them.

The conflict seems obvious to everyone except the dealers. The IDA's website refers to its "complementary" missions. The reasoning goes like this: Who else can protect people when only we know what's going on in the industry? Another benefit is that the public doesn't pay for the regulation. That's like saying that you don't pay for a car warranty.

In practice, the IDA avoids some important investor protection issues. Here's a small example. The association has just published a very useful guide to bond investing. But, oops, it doesn't mention that the IDA helped set up the rules for bond trading. And just try to figure out what the rules are for getting individual investors the best price on a trade, or how much commission dealers can charge.

The IDA allows dealers to skirt what I believe should be their duty to get individuals the best price. The guide explains that most bonds don't trade on an exchange—brokers trade them by phone. So an institution placing a big order might get a better price than you, and a dealer might charge a lower percentage commission on a $1-million order than on a $10,000 order. When talking to an adviser, the guide says, "you should discuss commission." Gosh, thanks for the tip.

In fact, trade-by-trade Canadian bond price data stretching back five years are available. A senior official at the IDA told me the issue of best price "is probably something that they should look at." I first heard that line more than two years ago.

Then there's the IDA's wonky approach to investor protection. Last December, the Ontario Securities Commission thumped four mutual fund firms that had allowed speculators to engage in market timing when trading their funds between 1998 and 2003. The OSC ordered the firms to pay back $156.5 million to investors. In March, the OSC ordered another fund firm to pay back $49.1 million. Of course, dealers executed those trades.

In December, the IDA pilloried the dealers involved in the case. Three dealers coughed up $41 million in penalties—then grumbled privately that it was a "shakedown." And the speculator clients? They aren't under the IDA's jurisdiction, and they got to keep their questionable profits. What happened to the $41 million? About $7 million went to mutual fund investors. The rest went to the IDA to cover the cost of hearings and to support "projects in the public interest."

Yes, the IDA is often great after the fact when it penalizes brokers or firms for playing fast and loose with clients' money. On its website, you can search a database of individuals and firms that have been penalized. But it doesn't include all the original complaints. Paul Bourque, the IDA's senior vice-president of member regulation, says that 91% of the 26,000 staff at member firms have had no complaints filed against them by clients or their firms. So, perhaps 2,300 have. Bourque mentioned that 23 individuals have had more than 10 complaints. Wouldn't you like to know if one of them is your broker?

Now the IDA has even bigger plans. In a speech in June, IDA president Joe Oliver said the association would like to consolidate efforts with the Mutual Fund Dealers Association—which oversees mutual fund sellers—and Market Regulation Services Inc., the independent regulator for Canadian stock exchanges. Those folks want none of it. Many of them also say that the IDA should form a task force to examine its own practices.

Some day, I dream of going to an IDA website and viewing a log of all investor complaints, and the responses of the hard-working IDA staff. On another page, the dealers who, in effect, run the joint will be able to defend their practices.

51. Question for IDA and Joe Oliver re Senate Committee presentation: The CEO of the IDA, Joe Oliver, in his April 14, 2005 presentation to the Standing Senate Committee on Banking, Trade and Commerce, states on page 2 that “An investor who believes he or she has been subject to unfair or improper business conduct is encouraged to send a written complaint to the Association”. Why should an investor have confidence in sending a complaint to a lobby group of the brokerage industry which is registered as an official lobbyist in the Ottawa register?

Self-regulatory organizations are not limited to the securities industry—lawyers, doctors, engineers, nurses, the police, and virtually all professionals are regulated by self-regulatory organizations. All these organizations, like the IDA, have consumer protection mandates. On any issue where there may be a conflict between our Members’ interests and the public interest, the public interest will always prevail. The issue is not the existence of conflicts but how they are managed and whether the people managing them do so with integrity.

The nature of self-regulation implies a potential conflict which is addressed in a variety of ways. The securities commissions must approve all public interest by-laws after publication for public comment. The IDA is also subject to regular oversight and audit of our activities by the securities commissions. We rely on a series of checks and balances, including public directors on our Board and all our governance committees, including the Executive, Audit and Regulation Oversight Committees. Transparency is a high priority. Disciplinary hearings are open to the public and the complete disciplinary record—Notice to Public, Notice of Hearing and Particulars, Settlement Agreement, Reason for Decision, Disciplinary Bulletin and Media Release—is available on our website, along with monthly updates on complaints, investigations and prosecutions statistics.

We believe that our record speaks for itself. In the past three years, we have conducted 173 hearings, fined firms and individuals a total of $60 million, and banned 32 individuals for life.

"Yes, Joe, your record definitely speaks for itself". It is not very flattering of your organization when viewed from the outside.